As the January contract delivery approaches, the market spot price gradually returns, and Zheng cotton has experienced a rebound. Of course, this is based on the support of high spot prices. The market is doubtful whether cotton’s forward price can continue to perform strongly. Cotton prices fluctuate and adjust in a high range, and the risks in the market outlook are self-evident.
The macro monetary situation is both loose and tight, and market volatility has increased.
Currently, except for China, the monetary policies of other countries around the world are in an interest rate hike cycle. Among them, the Federal Reserve is expected to start raising interest rates before the first half of next year. This will inevitably have a great impact on the market. The market will focus on this for a long period of time in the future. A topic for trading and speculation. Of course, China’s monetary policy has always been focused on stability and has embarked on an independent path. According to the predictions of professionals, the probability of further domestic interest rate cuts in the later period is still relatively high. After all, the current economy is facing continued downward pressure.
Under the coexistence of loose and tight monetary conditions, it is expected that the trend of commodity prices will be very tangled, which determines that whether it is rising or falling, it will not be smooth sailing and will definitely intensify the shock. Another important issue is how to choose the direction of market outlook amid market entanglement. The current cotton price is in the historically high price range. Looking at the historical trend, the cotton price has not been running in the range of 19,000-20,000 yuan/ton for a long time. Most of the time it has been below this price. As for when the trend will turn next year, the market is full. Puzzled.
Cotton sales progress is slow and market pressure delays
According to the latest statistics from the National Cotton Market Monitoring System, as of December 16, the national processing rate was 80.5%, a year-on-year decrease of 4.2 percentage points, and a decrease of 6.9 percentage points from the average of the past four years, of which Xinjiang processing 82.0%; the national sales rate was 13.4 %, a year-on-year decrease of 20.3 percentage points, and a decrease of 14.8 percentage points from the average of the past four years.
The above data shows that the sales progress of new cotton has slowed down significantly this year. The reasons are multi-faceted, mainly three factors: supply, price and consumption. This year’s reserve cotton has shown new forms, mainly rotation + long release time and large trading volume, which has well satisfied the market demand and stabilized cotton prices. Enterprises are bidding in large quantities to reserve cotton, which will inevitably reduce the purchase of new cotton, resulting in slow sales of new cotton, which is significantly lower than the same period last year. Slow short-term sales will have limited impact on the market. Once sales cannot keep up in the later period, increased commercial inventory will become a pressure that hinders the upward movement of cotton prices. The larger the inventory, the greater the pressure.
All parties in the industry continue to compete, and cotton prices fluctuate widely
The competition in the upstream and downstream industrial chains is fierce this year. Faced with the high cost of lint, upstream processing companies are holding back and waiting for prices to pick up, while downstream companies are buying as they use, controlling risks and purchasing prudently. It is understood that many ginning companies in Xinjiang are currently in no rush to sell at reduced prices. First, they have sufficient funds, and second, banks are delaying corporate loan repayments. These increase the determination and conditions for enterprises to save cotton and increase prices.
At this stage, cotton prices have rebounded slightly. During this period, there was a sharp correction in crude oil and the U.S. House of Representatives passed a bill banning the use of all Xinjiang enterprise products. At this time, the correction of Zheng cotton was limited. The reason was of course the return of spot prices. The strong short-term performance has provided some support to futures prices. The question is how long will this support last? At present, most of the new cotton resources are concentrated in ginning enterprises. Under the strong atmosphere of ginning enterprises to raise prices, at least the enterprises will not sell at low cost prices in the short term. As for how long the price raising can last is questionable.
A cotton professional in Xinjiang said that the current selling price of cotton is lower than the cost price, and the futures price is lower than the spot price, and companies cannot hedge normally. Under such circumstances, sales willingness is low, and they hope that the market can provide profits. Or sell at the right time under the condition of guaranteed capital. On the other hand, downstream cotton yarn sales are sluggish, and the purchasing willingness of textile companies is also very low. Therefore, the two sides continue to be in a stalemate, which is reflected in the range-bound fluctuation trend of cotton prices.
Inventory continues to increase and operating rate decreases
After the rapid development since last year, the production pace of textile enterprises has finally slowed down. The reason is that downstream demand is not good, and the production and sales of enterprises are temporarily in trouble. Textile companies have experienced ups and downs this year. Since last year, orders have been overwhelming, yarn profits have remained high, and every company has made a lot of money. Even the boom in sales of textile machinery has not been seen in many years.
Good times are always short-lived. After rapid development, cotton yarn profits have dropped significantly. A textile company said that currently it will suffer losses when purchasing new cotton spinning medium and low count carded yarn. Under the condition of losses, the enthusiasm of enterprises for spinning is greatly reduced. At present, yarn stocks are relatively large. Many companies have inventories of about two months. Some companies have so much cotton yarn that their warehouses cannot hold it. They are actively contacting them about renting warehouses to store cotton yarn. Not only the inventory of cotton yarn is large, but also that of downstream fabric factories. Under the pressure of inventory expansion in various downstream links, cotton yarn sales are facing certain difficulties.
Destocking may be the most critical issue faced by enterprises now. In order to reduce risks and reduce the pressure on capital occupation, the strategy adopted by enterprises is to actively sell cotton yarn while reducing the workshop operating rate. Sometimes the market behaves like this. The more the price drops, the more cautious companies will be in purchasing and conduct business.It will accumulate inventory, otherwise it will deplete the inventory, and the short-term cotton market pressure will not be easily eliminated.
The external market trend is strong, cotton prices are supported
Recently, the trend trajectory of U.S. cotton ICE is basically consistent with that of Zheng cotton, showing that the two are closely related. From the perspective of technical trend analysis, although ICE does not have the conditions for a sustained surge, a deep correction is not realistic and will still maintain a range-bound form. . The December global production demand forecast released by the International Cotton Advisory Committee (ICAC) believes that international cotton prices will remain at a high level in 2021/22. Even if cotton demand is stable and healthy, the opening stocks and production in 2021/22 will be able to meet market demand. cotton demand. In addition, although there is some speculation in the ICE futures market, considering that global production is expected to increase to 25.73 million tons this year, it can basically meet or even exceed the growing demand. On the other hand, lower U.S. inventories, a large number of On-Call contracts and speculative trading continue to support futures prices.
According to the current status of ocean and atmospheric circulation in the equatorial Pacific and the prediction results of domestic and foreign climate dynamic models and statistical methods, La Niña weather is expected to continue to exert its influence and may reach its peak in winter (January 2022), forming a weak to moderate La Niña event. Perhaps it will have an impact on future southern hemisphere cotton production. Another thing worth paying attention to is that since the spring of this year, the prices of pesticides and fertilizers abroad have risen sharply, and the average price of nitrogen fertilizers in the southeastern United States has increased by 75%. As inflation continues to rise in 2022, the prices of inputs for the planting season are likely to rise again. In summary, foreign cotton prices are likely to remain in a high range in 2021/22.
At present, the contradiction between long and short domestic cotton is more prominent, and the contradiction between historical high prices and future consumption has intensified, resulting in more severe price shocks and a significant increase in market risks. In the face of known long and short news in the future market and potential black swan events, companies need to operate more prudently and do a good job in risk prevention and control.
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